Part of our build your own financial plan series

Woman who is creating a budget to determine how to fund her financial goals.

Your 2021 budget: How to get started, step-by-step

So 2020 hasn’t been the year any of us expected. It seems like everything was turned upside down. Your plans for spending and saving money may have taken a detour. If so, you’re not alone.

Are you ready to start looking ahead and create a new financial budget for 2021? Take control of what you can and move forward? We can help you get started.

Your first step is to set goals and complete a financial goals worksheet (PDF) to identify and prioritize:

  • Short-term goals—six months to five years
  • Mid-term goals—five to 10 years
  • Long-term goals—more than 10 years

Make note of the current savings you’ve put toward each. If you’re short of money for a goal, how do you fund that?

Thumbnail of the financial goals worksheet.

Get started by completing our financial goals worksheet (PDF).

Yes, the dreaded “B” word. (Budget.) Where can you cut back? What are your priorities? Because when you can “find” extra money to save and invest (and potentially grow), goals can become more attainable.

‘Back in’ to your budget.

“Some people resist doing a budget because they think it’s going to restrict them from spending the way they want,” says Stanley Poorman, a financial professional with Principal®. The reality is that most of us overspend just because we don’t have a focused plan.

Think of a budget as a tool that organizes your monthly cash flow to include your saving and investing goals. To ‘back in’ to it, you pay critical expenses first, and then decide what to do with the rest. That’s a shift in thinking. Poorman says rather than treating a budget like it’s a starvation diet, you’re putting yourself in control of an organized financial plan.

Here are step-by-step instructions.

  • Use our downloadable budgeting to fund your goals worksheet (PDF) and jot down what’s coming in, what going out. Look at recent bills plus bank and credit card statements to give you the facts.
  • Adjust. Prioritize. Revise, as needed. (Fixed expenses = bills you’re committed to paying, like a mortgage, car payment, or utilities. Discretionary = you have some control over what/how much you spend, like clothing or hobbies.)
  • Make note of your monthly take-home pay. Subtract your new/revised budget. See what’s left that you could put toward your goals.
  • For each of your goals, check whether it’s fulfilled or needs more funding, and if it’s a “critical” goal.
  • Decide how much of the extra money you’ve found could be put toward your critical short-, mid- and long-term goals. Log it on the worksheet. Once you’ve made good progress toward your critical goals, start tackling the rest of ‘em.

Is your budget still coming up short?

Don’t panic. You can continue to look for ways to adjust your spending and saving throughout the year. For example, a good next step would be to focus on tax planning. (To learn more, read: “10 ways to keep more of what you earn.”)

Here are a few more stories that may inspire you to think about your budget in new ways:

Do you have some budget busters? If so, you’re not alone.

Based on research from Principal, Americans say they spent more than they budgeted in 2019 in these areas:

  • Dining out (27%)
  • Food/groceries (24%)
  • Entertainment (19%)
  • Clothing/apparel/shoes (16%)
  • Vehicle expenses (16%).

They considered their top financial blunders last year to be not saving enough (22%) and not budgeting properly (11%).

If you can set a budget now and develop good habits going into next year, it can make a big difference in how you finish 2021.

More income can mean faster progress.

Of course, more income helps, too. Lots of people have a side hustle for extra money. Maybe you can teach an online community education class about container gardening, make funky furniture for local art fairs, or tutor high school algebra students.

Is now the time to ask for a raise at work that you feel you deserve?

If you’re considering a job or career change, will you have a higher salary? That could help you meet your financial goals faster—if you don’t change your standard of living and put the extra income toward the college fund for your kids, the camping trip with your friends, or the credit card you’re paying off. (Whatever your goals are.)

Next steps

The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment advice, or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, investment, or accounting obligations and requirements.

Investment advisory products offered through Principal Advised Services, LLC. Principal Advised Services is a member of the Principal Financial Group®, Des Moines, IA 50392.​

Insurance products and plan administrative services provided through Principal Life Insurance Co. Securities offered through Principal Securities, Inc., 800-547-7754, member SIPC and/or independent broker-dealers. Principal Life, and Principal Securities are members of the Principal Financial Group®, Des Moines, Iowa 50392.